Private Jets, Girls, Casinos – What Caused This Law Firm’s Collapse?

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Another large law firm has filed for bankruptcy after $20 million apparently went missing and the recriminations are mounting as to just who was responsible for the collapse.

Morris Schneider Wittstadt was a large residential real estate closing firm and filed for Chapter 11 protection on Sunday.

At one time the firm had over 150 lawyers and 700 staffers and provided a once lucrative law practice in the real estate business.

No more. And scandal is following its bankruptcy with the firm currently employing just five lawyers and 30 staff.

HousingWire reports that Morris Schenider’s employees learned of the firm’s failure in a conference call last Thursday. HousingWire also obtained an email from Sue Crouse, the firm’s director of human resources, sent prior to the bankruptcy filing. It’s ominous:

During the last week we have received formal written resignations (sent to multiple individuals), as well as, verbal notifications of pending resignation without a formal written resignation provided. To ensure we have accounted for all employees please respond to me with one of the following:

1) I have already submitted a formal resignation effective _____________.

2) I have not previously submitted my written resignation; however, I have found employment and will be resigning from the firm effective ________________.

3) I have not resigned and do not currently have a new position outside of the firm.

AbovetheLaw reports that Crouse said that employees that have already resigned (or plan to resign) will be provided with separation materials on Monday or Tuesday. Crouse asks all employees to provide her office with their personal email, contact number and home address.

“For individuals who have not resigned and not secured employment outside the firm, you will either be assigned to the transition team or provided separation materials,” Crouse writes. “It is essential you communicate your status ASAP to me via email.”

What could have happened to cause Morris Schneider’s complete meltdown?

The Wall Street Journal has more information on the firm’s sordid debt drama:

Morris Schneider’s troubles have been playing out publicly since last year, when [more than $20 million] was found to be missing from accounts linked to the firm’s real-estate business. The firm claims that former majority owner Nathan Hardwick tapped the firm’s accounts for his “personal use (including payments remitted directly to casinos and on account of private jets for the personal use of Mr. Hardwick, his girlfriend and family),” the firm’s executive managing partner, Mark Wittstadt, said in bankruptcy court papers.

Last summer, the firm’s owners found a multimillion-dollar shortfall in its escrow accounts, and while Hardwick was pushed out and sued for embezzlement, he denies all of the allegations. Hardwick’s lawyer, Edward Garland, explained: “What happened here, that culminated in the collapse of Morris Schneider and Wittstadt, is really the result of a rash, unverified set of false allegations made against Nat Hardwick.”

As soon as the embezzlement news made its way around, Morris Schneider’s practice started drying up. A title company took over the firm’s title business, and Butler & Hosch took over the firm’s foreclosure business (the latter was obviously a mistake, since that firm closed up shop in May). According to Morris Schneider’s bankruptcy filing, the firm has less than $10 million in assets and more than $17 million in debts.

Sources: Wall Street Journal/AbovetheLaw
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